British drugs firms Glaxo Wellcome and Smithkline Beecham merged in 2001 to form what was then the largest pharmaceutical company in the world but it was the Old Mother Hubbard of the sector.

The company had a miserable selection of drugs in clinical trials. "I don't think people realised how bare the cupboards were at the time of the merger, in both companies," said Jackie Hunter, who is in charge of neurology and gastrointestinal research at GlaxoSmithKline and was previously at Smithkline Beecham.

Even if a firm is selling billions of pounds' worth of drugs, unless it has new, better products in development, sales can quickly diminish to nothing. Firms only have a short time to make money on a drug while the patent is valid and they can charge way over manufacturing costs in order to recoup the development spend.

The decline has started at GSK. The end of the patent on antidepressants Wellbutrin and Seroxat contributed to a 14% slump in profits in the first half of the year.

GSK's sparse product pipeline has been blamed on its focus on the merger rather than on research and development. But Dr Hunter says it was more to do with the strategies of the separate companies. "At Smithkline Beecham, the impetus was on coming up with innovative therapies, everything had to be pioneer and high risk." These drugs have a lower chance of getting through the painstaking process of testing for safety and effectiveness.

An example is a drug for pain and migraine, 406381, GSK has in mid-stage clinical trials. "This Cox 2 inhibitor was a low priority in the former Glaxo, because the drug had a precedented mechanism of action," she says. There were already similar drugs on the market. "Now everybody is really excited about it."

The firm hopes it will be more effective in reducing pain than current products on the market and hopes to file for regulatory approval in 2006.

GSK has put a lot of effort into trying to restock its larder. It has increased the level of screening it does on drugs in development, and conducted 58m chemical reactions in its automated screening labs last year, each with a different combination of potential drug and human receptor to test for the potential effects on the human body. The number is double that at the time of the merger.

Every compound will be put into the screening process, dubbed high throughput because many molecules can be tested at the same time. Some chemical reactions are always checked early - if a drug interferes with potassium levels in heart cells it will harm the organ's function, so all drugs are tested on this receptor. Similarly for certain liver enzymes, because if the body breaks the drug down too quickly there would be no point in taking it.

GSK holds 1m different potential and existing drugs in large, sealed-off compartments kept at -30C, ready to be screened and tested. A robot zips up and down the shelves to collect and put back molecules, using a barcode on the side of the container to identify them.

Such screening techniques were heavily relied upon by big pharmaceutical firms but did not produce the hoped-for high volume of drugs. GSK has tried to use the process more intelligently, with better molecule design and effectiveness testing and working with specialists. The result, GSK scientists say, is more compounds of a higher quality passing on to the next stage of development and a validation of using screening in drug discovery.

"A larger proportion [of compounds] are coming from high throughput chemistry in GSK and large organisations," says Peter Machin, the head of chemistry and screening at GSK. "They are specifically developed and targeted towards particular biological target classes."

In most large drugs firms, after screening the potential molecules are sent away to the research department, which will test the compound on animals and tissue cultures. If it looks promising it will be sent to development, to prepare for clinical trials. "It's a bit like Stars in Their Eyes, the drug goes through mystery doors and if you are lucky, 10 years down the line it appears as a product," says Dr Hunter.

GSK has radically changed this model. It has grouped its research scientists in seven groups, called Centres of Excellence for Drug Development, or Cedds. The intention is to treat these groups like small biotechnology firms and encourage entrepreneurship. The Cedds take potential drugs from the screening labs and are responsible for their development through to mid-stage human clinical trials, where a "proof of concept" is established - that is, it is shown the drug does what it should do and does not lead to unpleasant side-effects.

The divisional heads, like Dr Hunter, deal with budgets, early stage research and regulatory and clinical trial issues. They are also given financial incentives to produce good drugs. This higher level of responsibility and accountability is unusual in large drugs firms, she says.

"If I don't get proof of concepts it affects me, my bonus and the people in the Cedd; we feel like we have failed. There's no place to hide." She says drugs need "champions" who will promote them within the firm - and the Cedds make this easier.

But some analysts are still nervous about the pipeline of new drugs and are waiting to see the results of GSK's novel approach before they start the applause. But it will be a long time before drugs produced from this new system are on sale.

"What's come out of the [screening], after going through automation, we will have to wait another 10 years to see how this unfolds," says Dr Machin. "Out of 10 drugs in development [in human clinical trials] you are lucky if one or two get on the market. The success rate is incredibly low. Either we are all incredibly stupid or it's incredibly hard. The latter is the position. We know so little about the complexity of the human body."

The Cedds are producing results - for instance, a significant rise in the number of drugs going through clinical trials. In 2001, about six drugs started phase II or mid-stage clinical trials at GSK, in 2003 there were 15. Statistically, the chance of getting new drugs on sale has increased.

But until they are, there will be no time for celebration at GSK. But one Cedd head is optimistic. "I was one of the biggest sceptics of Cedds," says Dr Hunter. "Now, I'm passionate about them.

"Until some of these little babies reach product and make a difference to people, then we won't truly know. But I do believe we have turned the corner."